Within the space of 24 hours this past week I had 3 painful conversations with Tech Star Entrepreneurs that crashed & burned. Actually, make that 2 & 1 at risk. It gutted me just listening to their shared pitfalls. Their mistakes all too common, totally avoidable & that’s what’s inspired this post today.
Scenario #1; Entrepreneur builds his company from scratch, doubling & tripling revenues year-on-year to $19 million in little more than 4 years before hitting the wall.
Scenario #2; Entrepreneur builds his company from scratch, doubling & tripling revenues year-on-year, eventually bringing in +$20 million in funding 7 years later and subsequently suffering a steep nose-dive within the next 2 years.
Scenario #3; Entrepreneur still building his rock star company, the entire world sitting in anticipation of its launch, yet sits precariously vulnerable to loosing control over their life dream.
Unfortunately these scenarios are not unique, they happen all the time & generally attributable to the same reasons.
- Loss of control over your own destiny
- Forced unnatural growth of your venture
- Lacking a Core Ideology to anchor your ventures rapid success
- Lack of agile frameworks to support your scalable growth
- Lack of focus and execution on your core plan, or the ability to quickly pivot your strategy
- The wrong people hired for the right jobs
By the end, most ventures suffering from these top common failings do run out of cash, but cash was an eventual problem and never the actual root cause.
What’s the current writing-on-the-wall that might be spelling impending disaster?
Coincidentally, I came across this +5 minute fun-filled clip which in itself recounts the same challenges you’ll have to overcome in order to be a long term Tech Star, so listen closely & pay attention!
What have we learned from these battle worn tech stars?
If it’s personal & it’s your dream.. protect it like so
As an individual who’s career hasn’t turned out quite the way you wanted it to be it sounds exciting to join a start-up in the digital space, build a rock star business with lots of scale & sell it for a $100 million+.
Is that your master plan? Do you want to sell it before you get in too deep?
If you’re building something out of passion and want to see it to the end remember that your life dream may just be another bet for the quality firm about to give you funding. What can you write into your shareholder agreement to ensure you retain control over the destiny of your venture’s future?
- Golden votes
- Watch the dilution & the other terms
- Don’t give away too much precious equity
That 1 percentage point you just gave away in exchange for a few hundred thousand might just be the vote that get’s you fired by a hostile board or overruled to take on unnecessary risks. How can you extend your runway today to hold onto more control over your destiny?
Don’t believe the hype
When you’re sitting in an International Entrepreneurial fair surrounded by success don’t let yourself be lulled into the trap of thinking that entrepreneurial quick wins are the norm. Google, Apple, Netscape & every other highly visible venture out there are the exception to the rule. It’s going to be a hard-slog so prepare yourself emotionally & mentally for the ride. Second time entrepreneurs with exits & scars typically do find the backing comes easier and the money comes cheap, but they also bare the damages from previous battles.
Don’t fall pray to an artificially sky-high valuations & find the necessary appropriate resources to give you advice. Getting the right team to surround yourself is very worthwhile.
Boot-strap to succeed
Using cloud computing, open source & Facebook for free distribution will help you do it all without a need for series B. Hire the staffers & engineers, paying them with options, pizza & beers. Get laid off bankers to do your deals, and any other resources sharing your passion. Even if that’s not the formula, what alternatives can you think of that you may not have thought of before?
What stories might you have to share from your own experience? Whether an employee or an entrepreneur, how have you seen certain success become a doomed failure?